HMRC Issues Guidance On The IHT Nil-Rate Band

When couples talk to me about estate planning and Inheritance Tax, I always recommend they start by quantifying the potential liability insofar as how much of the estate would be liable, and when that arises ...

For most couples, the majority of the liability arises on the death of the second spouse. So, at that point, how much of the estate will be taxed at the nil rate? The good news is that any nil-rate band not used by the first to die can be transferred to the survivor.

"This is possible for the residence nil-rate band too!"

HMRC has published guidance on transferring nil-rate band to surviving spouses and civil partners. The current nil-rate band threshold is £325,000. This is effectively a tax-free allowance and on transfer, the amount available can be as much as £650,000 if none of the original £325,000 was used on the death of the first spouse or civil partner.

It is only possible to transfer the unused nil-rate band if the couple were married or in a civil partnership when the first death occurred or if the request is sent to HMRC within 2-years of the death of the surviving spouse or civil partner. Percentages of unused nil-rate band available for transfer must be calculated based on the time of the first spouse or civil partner's death.

"How do you claim?"

The way to make a claim is dependent on the type of estate, when the person died or whether less than the full threshold is transferred. For deaths on or before the 31st of December 2021, claims must be made using form IHT217. If you want to transfer less than the full unused threshold, a full return must be made using IHT400 and IHT402.

For deaths after the December 2021 cut off date, unused amounts can be transferred though it is necessary to claim when probate is applied for. If the person was to die in Scotland, use form C1.

If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.